Although there is some evidence that the credit market is loosening, it is clear that the harsh lending environment of the past two years has taken a toll on a wide range of businesses. There are, however, tools that provide temporary help, including the government’s current policy on “loss carrybacks.”
As part of the original stimulus bill, the loss carryback provision gave qualifying companies that registered a loss on their current income tax return the opportunity to extend that loss into previous, profitable years. Under the adjusted regulations, the field of qualifiers has been expanded to include most companies, and a loss booked for the 2008 or 2009 calendar year (but not both) can be carried back up to five years through amended returns.
A CNN article on loss carrybacks points out that the provision has resulted in “some giant refunds for big businesses — troubled homebuilder Lennar recently booked a $353 million tax gain from the provision — and a much bigger hit to the nation’s coffers. The Joint Committee on Taxation estimates the carryback change will cost the government $33.2 billion this year, though the 10-year cost of the break is smaller, because companies won’t be carrying 2009 losses forward to reduce their future tax bills. The committee’s estimate of the 10-year cost is $10.4 billion.”
The move isn’t unprecedented. According to an article in CFO Magazine, the Bush Administration provided a similar opportunity following 9/11, and in 2009 the original amendment was available only to businesses with less than $15 million in revenue. This time it applies to businesses of all sizes and includes pass-through entities as well as C-corporations.
Anecdotal evidence suggests that companies are finding real benefit - albeit short term - in the carryback provision. Is it a measure you think will aid small to midsized companies through to a recovery?